Fleet management: Getting ready for the boom

Written by: Jason Hovet
Photo by: Tomáš Kubeš, Jan Vágner

While the fleet management and operational leasing sector has seen a great year, it’s no time for local leaders to celebrate. A number of new players have entered the market in anticipation of the real boom to come.

Martin Mitterwald Photo: Jan Vágner

FLEET MANAGEMENT is becoming more and more a pan-European – if not global – business, and the Czech Republic is not exempt from this. This can have two effects where, on one hand, international contracts are filtering into the country, but, more importantly, regional contracts are also originating from Prague. Whichever the case, both are helping the market, which is evident in the increasingly popular operational (and full-service) leasing crossing the psychological 5% barrier last year, with some estimates putting it at 8% of the fleet leasing market.
The biggest global change of 2004 was operational leasing market leader being sold to a consortium led by Volkswagen Group (VW). For now, the marriage of the country’s dominant car importer with Lease Plan hasn’t had any visible effect on the local market, although the deal was only concluded last November, and there will be an eventual consolidation of Europcar Fleet Services (another VW subsidiary) into Lease Plan. Philip Aarsman, managing director of competing Business Lease, shares the prevailing opinion: “Lease Plan, being a member of the VW group, will have a big influence on the rest of the car market, but how exactly, I can’t predict.”
Even more, Lease Plan management, from the beginning, has maintained the company will keep its independence as a “non-captive” lessor – however, some don’t see how this can be done. Martin Mitterwald, Lease Plan’s sales & marketing director, counters that VW cars were already a majority of its fleet, and he doesn’t see any strategy change yet. “We’ll keep doing what we do,” he says.
While it may be too early to talk about the deal’s impact on the Czech market, the move is part of a larger trend of vehicle manufacturers (VMs) using non-captives to break into the operational leasing market – partly an effort to reach end users and partly as an additional sales outlet. According to Datamonitor, VMs now control 42% of the European market. While this development hasn’t caught on here yet – as most VM’s multi-brand leasing companies, such as BMW’s Alphabet or GMAC’s Interleasing, have no Czech presence at the moment – local fleet providers know the Czech market will change in coming years. “The big are going to be bigger,” says Petr Kosmák, Sixt Lease’s sales & marketing director, adding that smaller providers will fill some gaps, but those in the middle will be swallowed up.

Petr Kosmák Photo: Tomáš Kubeš

The right choice
The reason for the increased interest in fleet leasing is simple: operational leasing continues to grow briskly at financial leasing’s expense. (Companies paying cash outright remain stable, helped by state companies, which most often choose this option.) “The share of operational leasing is still relatively small, but growth is between 20-30% each year,” says Aarsman of Business Lease. This trend should continue as most large European operational lessors are in the market now, which, in turn, helps make the segment more appealing. “Competition is making operational leasing more attractive,” says Štefan Majtan, managing director of Arval, which entered the Czech market in 2003 and already has a 1,000 car fleet. Another new entrant is Hertz Lease, which opened its office in October last year and, in the Czech Republic, is a franchise operated by Archer Sheridan, a subsidiary of its Irish parent company. “We think operational leasing is the product of the future,” says Lukáš Malík, sales & marketing director at Hertz Lease, explaining his firm’s move into the market. This competition, Arval’s Majtan adds, is already having an effect on prices with some companies out of the pricing level. “Companies will definitely get more for their money now,” he opines.
This is good news as one complaint against operational leasing is the higher cost. For example, ČEZ has a fleet of 500 cars, split between Škoda and Opel brands with a few exceptions, and recently called a tender for an additional 300. According to Milan Nebesář, company spokesman, the firm bypasses leasing companies and pays cash directly. The firm also has no plans to use operational nor financial leasing in the future because of economic disadvantages, says Nebesář. At Toyota Financial Services, sales manager Štěpán Markvart readily admits the price of operational leasing is higher. “Operational leasing levels [will rise] as soon as there will be no more tax advantages with financial leasing,” he says. Still, many firms have found significant advantages in operational leasing, despite the higher price tag. “We use operational leasing because the leasing company takes care of everything connected to car maintenance,” says Michaela Tryznová, Staropramen Brewery’s spokeswoman. She adds the online operational and cost controlling tools provided also help to manage the brewery’s 300 car fleet.

Jaroslav Laur Photo: archive

Market driver
More big companies have also come round to operational leasing. “Due to some big tenders in 2004, our car fleet has grown by over 60%,” says Aarsman, from Business Lease. His company, along with Lease Plan, won jointly in a tender for Český Telecom, which chose operational leasing for the first time as part of its restructuring effort in preparation of its pending privatization. According to Aarsman, companies being privatized or merged have good reasons for operational leasing because of “a shortening of the balance sheet” and cost transparency, both of which factored in Český Telecom’s decision.
While contracts are getting bigger, a lot of multinational lease providers are helped locally by pan-European contracts, which is a rising occurrence. “The situation on the purchasing side is globalizing,” says Radek Mužík, who monitors the fleet segment for Incoma, a research company. Still, he cautions that although more decisions are made at global headquarters, it doesn’t always work out perfectly, However, the importance of these types of contracts isn’t diminished. It has helped Arval, with a third of its local business coming from European contracts, get a foot in the market. “This trend is very healthy,” Majtan says, noting business can be tough if they lose on this level. On a smaller scale, the Dutch-owned Business Lease, which chose to open its first central European subsidiary in Prague in 1996, has used the strength of regional contracts to expand into Slovakia, Hungary and Poland. Aarsman claims 80% of its business comes from regional agreements.
Currently, a bulk of deals are generated with (western) multinational companies who have experience with operational leasing in their home countries. Slowly, though, small and medium-sized enterprises (SMEs) are becoming more valuable. “There’s a big chance to grow here,” Mužík, from Incoma, says. The sales & marketing director at ALD Automotive, Jaroslav Laur, already has a number of clients from SMEs. He believes that a shift to buying a car as a working tool rather than a status symbol is occuring among many managers, and reasons that more people are recognizing the financial and time-saving benefits.
In car fleets, regardless of the financing option, companies are now finding more cost savings connected to repairs and purchasing price when they narrow the number of brands. This works in the favor of car manufacturers, who also see a good amount of business in fleets. “Corporate sales are very important for us,” says Ivan Růžička, managing director of Opel, a popular fleet choice especially among commercial vehicles; 70% of sales for Opel are from corporate customers. Similarly, companies are big clients for Ford. The carmaker, as well, offers operational leasing under its Ford Business Partner brand, and according to company spokesman, Martin Linhart, companies use this method most often, with corporate customers making up 70% of all operational leases – proof of one more company positioning itself while waiting for this segment to really take off.

A watchful eye Philip Aarsman Photo: Tomáš Kubeš Knowledge is power – and in fleet management it’s a distinct selling point. With company fleets getting larger, and clients demanding more up-to-the-minute statistics on their cars, the reporting involved with full-service and operational leasing has moved from paper to computer screen. “Information technology is one of the pillars to be successful in the fleet management segment,” claims Philip Aarsman, managing director of Business Lease. For its part, Business Lease employs the widely popular Enterprise Resource Planning (ERP) software, which is used by businesses around the world. “Our software provides the opportunity to deliver a constant quality measurement,” Aarsman says, and clients can also log in to monitor operational costs. Martin Mitterwald, sales & marketing director of Lease Plan, explains the importance of online reporting by pointing to Lease Plan’s fleet: 14,000 cars managed by 80 employees. Simply put, online systems make operations easier, as it is often drivers who are updating the information. Being a subsidiary of the world’s largest fleet manager, Lease Plan uses the company’s Plan 8 Push system, developed in the late 1990s, which allows customers to access reports, budget analyses, and a particular vehicle history. Similarly, another multinational, ALD Automotive, uses its corporate Calder sytem. According to Jaroslav Laur, the firm’s sales & marketing director, the system has become a great communication tool. However, technical solutions aren’t limited to just reporting. Fleet monitoring has created a lucrative business. One of the largest providers is CCS, which has evolved from offering payment cards designed for company fleets to providing fleet monitoring – a service that uses a GSM system and often can notify company fleet managers on car locations using a simple SMS. Establishing the service in 2001, CCS now has hundreds of clients, most with medium or large fleets. It offers its tracking in both offline and online form, although, according to company spokesman David Sroka, the trend has been toward online services. Through tracking, clients can not only keep tabs on cars and deliveries but also weed out unauthorized car use, as well as register and plan trips. CCS and Position, another firm offering tracking and fleet management software solutions, both reported increased sales and clients in the last few years. Petr Mašek, a co-owner of Position, says his company now has more than 100 clients, many in the utilities sector, including ČEZ, and has turnover of nearly CZK 20 million. More importantly, they expect this growth to continue.

Tomorrow’s car fleet Štefan Majtan Photo: Tomáš Kubeš Although savings at the fuel pump are currently minimal, and despite falling sales in 2004 (down 14%), diesel cars are now found more often in company fleets. “Diesel is gaining popularity for the lower fuel consumption combined with lower maintenance and repair costs,” says Business Lease head Philip Aarsman. ČEZ’s spokesman, Milan Nebesář, confirms this. “So far – as our recent tender shows – we prefer diesel cars because of cheaper operational costs,” he says. Štefan Majtan, managing director at Arval, also factors in the better depreciation rate of diesel models. “However, some companies really don’t need to invest into this because of lower mileage,” he says, pointing out that savings are most visible in cars driven 25,000-plus kilometers a year. It’s for this reason, though, that diesels have found a home in many corporate fleets. “Company cars usually have higher mileage,” notes Lukáš Malík, sales & marketing director at Hertz Lease. But are diesel cars about to be challenged for cost savings? Toyota’s gas/electric hybrid car Prius is making its way to the market – altough many are doubtful of it being used in company fleets. “The use of hybrid cars in fleets is still talk of the future,” says Malík, “because the involved technologies are new and there is still no infrastructure [like refitted fueling stations] for these kind of vehicles.” Majtan, from Arval, agrees, saying, “for most companies, a car is a tool that needs flexibility and independence.” Radek Mužík, of Incoma Fleet Monitor, believes hybrids in fleets will be used mainly as a PR tool. For the future fleet car, others are looking farther down the road. “The real future is hydrogen,” Aarsman asserts, referring to the ongoing development of fuel-cell cars, where a chemical reaction, usually between hydrogen and oxygen, creates electricity for the motor. Daimler-Chrysler, the pioneer in this area, already has a fleet of fuel-cell cars in the hundreds, and other manufacturers aren’t far behind. Analysts believe these cars will be a common sight in the west in 10 years. In the Czech Republic, it’s still a question of time, as the infrastructure for this would need government support. Still, Majtan feels that “if a trend starts, the Czech market will take advantage of it.”